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COST INDICES & TRENDS (CHAPTER 4) - Coggle Diagram
COST INDICES & TRENDS (CHAPTER 4)
INTRODUCTION
Building cost is greatly influenced by the cost of labour and materials used in the construction of a building.
Almost all cost data are obtained from constructed and completed projects over the past few years.
Data have to be updated to reflect the price when the estimate is done.
QS has to observe these indices together with the future trends of cost fluctuation, and evaluate the differences based on location to make price adjustments to previous cost data
The collected data must be
converted to a current date
or appropriate future timescale.
This conversion process is normally achieved both in theory and in practice by means of
INDEX NUMBER
An index number will measure the change that has occured from one period to another
COST
An amount that has to be paid or spent to buy or obtain something
INDEX
Statistical aggregate that measures change
TYPES OF COST INDICES
Current indices of construction
provide planners, project managers and clients
Both types of indices are relevant for construction and
allow each side of construction costs to be presented together to provide a complete picture of construction economics
Tender Price Index (TPI)
Represent
the price foe which the contractor offers to carry out the project.
In other words, tender index shows conversely what price contractor charge for the realisation of project.
It is based on what the client is prepared to pay for the building.
Market Conditions
Profits
Building Cost
Building Cost Index (BCI)
Represent
the costs incurred by the contractor in the course of his business.
It shows the development of labour, material and other procurement which is related cost as a complete picture.
Also shows the purchasing side of the building together.
Materials Cost
Plant Cost
Actual Wage Rates
Overhead Charges
DIFFERENCES BETWEEN TPI AND BCI
USES OF COST INDICES
Cost Planning
The process of cost planning requires the effective use of a wide range of cost data.
Data have to be updated using indices to enable the cost plan to be used effectively.
Prediction
The pattern of trend of the current index may be extended to a certain date in the near future.
The prediction must be done cautionsly.
The projection of index can be easily predicted if the market condition and price are stable.
Adjustment to price fluctuation
Used to
calculate the increase in the construction cost for contracts with fluctuation clauses
(contract that provides the allocations for the increase in the cost of the contractor's resources like material, labour wages, plant and overheads.
Comparison of price
The cost of diferent materials and processes does not change at the same fixed price rate.
Index can be used to measure such changes and to observes such changes in cost between components at a stipulated duration
Evaluation of market condition
The
condition of market also influences the sum to be paid by the client
(apart from the construction cost).
The tender price index will take into consideration these changes.
Market Trend Index
Tender Price Index / Building Cost Index
Price Appreciation
Values in the indices could be used to update the price in the Bills of Quantities or other resources to the current value / future value.
The process involved is similar to the process in cost planning.
SOURCES OF COST DATA
Tender Price Index (PWD)
Building Material Cost Index (DSM)
